The risk of type 2 diabetes (T2D) is increased by abnormalities in sleep quantity and quality, circadian alignment, and melatonin regulation. A common genetic variant in a receptor for the circadian-regulated hormone melatonin (MTNR1B) is associated with increased fasting blood glucose and risk of T2D, but whether sleep or circadian disruption mediates this risk is unknown. We aimed to test if MTNR1B diabetes risk variant rs10830963 associates with measures of sleep or circadian physiology in intensive in-laboratory protocols (n = 58-96) or cross-sectional studies with sleep quantity and quality and timing measures from self-report (n = 4,307-10,332), actigraphy (n = 1,513), or polysomnography (n = 3,021). In the in-laboratory studies, we found a significant association with a substantially longer duration of elevated melatonin levels (41 min) and delayed circadian phase of dim-light melatonin offset (1.37 h), partially mediated through delayed offset of melatonin synthesis. Furthermore, increased T2D risk in MTNR1B risk allele carriers was more pronounced in early risers versus late risers as determined by 7 days of actigraphy. Our results provide the surprising insight that the MTNR1B risk allele influences dynamics of melatonin secretion, generating a novel hypothesis that the MTNR1B risk allele may extend the duration of endogenous melatonin production later into the morning and that early waking may magnify the diabetes risk conferred by the risk allele.